Misinformation Is Keeping Sugar Protectionism Afloat

The prospect of a bold new farm bill this year has Congress in a lurch, with endless debates over which amendments to include and discard. As lawmakers embrace sensible reforms such as work requirements for the Supplemental Nutritional Assistance Program, leading policymakers have expressed reluctance to include an amendment to modernize the 80 year-old US Sugar Program. Not including the modernization of the outdated program would keep high costs in place for consumers and taxpayers, ensuring backlash from voters wanting to “drain the swamp.”

Many food tariffs and regulations have gone by the wayside in recent years, leading to expanding supply and lower prices. While this trend has certainly been encouraging, there remains one troubling area of exception: sugar. American sugar prices remain well-above international averages, causing hundreds of millions of American customers to pay more for essentials at the supermarket. But why do sugar prices refuse to budge at a time when food prices remain near historic lows?

Through a system of onerous tariffs and quotas, the US keeps inexpensive foreign sugar imports out of the country. Meanwhile, price targets continue to ensure that sugar producers will be bailed out by US taxpayers if prices fall below the “right” level deemed acceptable by the United States Department of Agriculture (USDA). As a result, higher prices for millions of Americans translate into gains for a handful of large, wealthy and politically connected sugar providers.

How can such a misguided series of policies possibly be justified? Advocates of the failed status quo point to the number of “jobs saved” as the result of the tariffs and subsidies in place since the Roosevelt Administration. Even a modest effort to open up sugar markets to foreign competition will mean that American processors will lose precious ground to competitors in exporting giants such as Thailand, India, and Brazil. This doomsday scenario, however, simply does not jive with the evidence.

In 2006, the European Union (EU) implemented a wide-ranging quota relaxation and target price reduction scheme. Foreign sellers were finally let in, and prices were allowed to reflect global marketplace conditions. Despite grumblings and cautionary tales about job losses, the sky didn’t fall. The job attrition rate stayed the same in the immediate aftermath of reforms, and actually slowed down since the start of the last decade. One metric that saw considerable movement was sugar prices, which are around 20 percent lower than it was prior to reforms.

Proponents of the US sugar program certainly aren’t afraid to talk about the EU’s bold experiment. The issue, however, is their strange treatment of the facts surrounding the case study. Status-quo advocates use outdated (2012) information about job losses that have occurred in the industry post-reform in suggesting that the EU’s “unilateral regulatory disarmament – crushed their domestic production.” This line of argument completely ignores gargantuan job losses that were happening before reforms. According to data presented by the European Parliament’s Research for AGRI Committee (see Figure 6), industry jobs were being shed at around the same rate in the few years pre and post-reform. Factory production and productivity, however, skyrocketed in the aftermath of reforms. Thus, the employment outlook may not have changed much, but worker output and salaries sure seems to have budged.

Unfortunately, presenting a one-sided view of trade losses to defend tariffs is nothing new for the pro-protectionism crowd. Opponents of the North American Free Trade Agreement (NAFTA) regularly cite the loss of thousands of manufacturing jobs in the twenty years post-implementation, while ignoring a similar job loss rate in the twenty year period leading up to the agreement. Ignoring the rate of change makes for poor policy analysis and distracts from the benefits to customers caused by trade liberalization.

Just like the EU, America has a rare opportunity to lower grocery store prices for the vast majority of citizens while boosting sugar industry productivity. As lawmakers put together and finalize the farm bill, members of Congress have a rare opportunity to help the little guy reclaim their earnings from a handful of connected processors. By going the way of the European Union and opening up sugar market to competition, Congress can end the status-quo of sky-high sugar prices.